U.S. stocks advance as Fed plans to continue bond-buying program

U.S. stocks rose, snapping a three- day decline in the Standard & Poor’s 500 Index, as the Federal Reserve will keep up its bond buying to stimulate the economy and euro-area leaders weighed options for Cyprus.

The S&P 500 advanced 0.7% to 1,558.84 at 4 p.m. in New York, within seven points of its record reached in 2007.

“The Fed essentially did what’s to be expected, which is to reinforce that the economy still needs support,” Hank Herrmann, Overland Park, Kansas-based chief executive officer of Waddell & Reed Investment Management Co., said in a phone interview. His firm manages $103 billion. “Cyprus just reminds us all the fragility of the economic circumstances in Europe. As you look at the economic data, pretty much everywhere outside the U.S. has been equally unconvincing in terms of any kind of expansion.”

More than three years into the expansion, the central bank led by Chairman Ben S. Bernanke is pressing on with open-ended purchases of Treasury and mortgage securities to boost the pace of growth and heal a labor market still scarred by the deepest recession since the Great Depression.

The S&P 500 has surged 130% from a 12-year low in 2009 as companies reported better-than-estimated earnings and the Fed embarked on three rounds of bond purchases to stimulate the economy. The benchmark index rose to within two points of its 2007 record last week while the Dow hit an all-time high.

Fed Statement

The Federal Open Market Committee, at the conclusion of a two-day meeting in Washington, left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%.

Policy makers lowered their expectations for the unemployment rate at the end of the year to a range of 7.3% to 7.5%, from a previous forecast of 7.4% to 7.7%. The economy will expand 2.3% to 2.8% this year, they estimate, compared with their earlier forecast of 2.3% to 3% growth.

Stocks rallied earlier today as euro-area leaders weighed options for Cyprus. Investors speculated that the European Central Bank will continue to support the country’s banks until next week after lawmakers in the Mediterranean nation rejected an unprecedented levy on bank deposits.

“In a lot of ways what’s happening in Cyprus only serves to reinforce the Fed’s current policy,” Richard Helm, a portfolio manager at New York-based Cohen & Steers, which oversees more than $40 billion, said in a phone interview. “It puts to bed that the Fed might raise rates sooner than later if you do have issues re-emerging in Europe.”